Australia takes aim at the country’s powerful banks

Offer transparent mortgages: ASIC chair

Australia’s corporate regulator took aim at the nation’s four major banks, saying the powerful institutions “with a lot of hubris” aren’t used to being taken on by regulators who have stepped up scrutiny of the scandal-hit sector.

Australia’s highly profitable banks have been hit by a series of scandals including allegations of benchmark rate-rigging and, in the case of Commonwealth Bank of Australia, alleged money-laundering breaches.

“When I became chairman I decided we need to build a war chest to take on big cases ... I am not scared of anybody,” Australian Securities and Investment Commission (ASIC) Chairman Greg Medcraft said at a Reuters Newsmaker event in Sydney, as he prepares to step down in November.

One of the emerging problems in the sector is loan fraud in the mortgage market, Medcraft said.

But it has been out-of-cycle mortgage rate changes that have generated the biggest public and political outcry, as home-owners struggle to meet high repayments with modest wages growth.

The banking sector should start repairing its reputation by offering variable mortgages at a set level above the cash rate rather than exposing customers to irregular pricing changes, he said.

Rate

“I would think the biggest thing the banks could do to win the trust of Australians would be to at least offer the option of a variable rate mortgage priced over something like the cash rate.”

Australian regulators have been pushing banks to tighten mortgage lending standards on worries a debt-fuelled bubble and bust in the country’s property market could destabilise the financial system and hurt the broader economy.

Medcraft censured the banks for increasing home loan rates for existing customers while offering discounts to entice new borrowers.

Representatives of Australia’s four biggest retail banks were not immediately available to comment on Tuesday. The head of the Australian banking lobby Anna Bligh said offering such a product would “add considerable risk into the banking system” due to the volatility of banks’ cost of funding. Medcraft said improving the culture and conduct of the biggest banks was one of his “unfinished businesses” as he prepares to step down in November.

Medcraft was not surprised that China had started to clamp down on private cryptocurrencies, which included last week’s move to ban so-called “initial coin offerings”, or the practice of creating and selling digital currencies or tokens to investors in order to finance startup projects.

He said that while it wasn’t the job of the Australian regulator to ban private digital currencies, he added it was becoming problematic.

Economy

“It’s classic non-cash economy in digital form,” he said. “If you don’t cut it off quickly, it will flower.”

“Having something that is issued by the state is going to be something more likely in the future than essentially a cryptocurrency.”

Bitcoins are not regulated in Australia as a financial product. The government recently proposed new laws to bring in bitcoin providers under the regulatory fold for the first time ever.

Australia would make a renewed push to integrate its capital markets with the United States, Medcraft said, opening up the country’s A$2.3 trillion ($1.85 trillion) retirement savings to American companies while giving Australians access to the deepest capital market in the world.

“What Canada has is what we want ... which is mutual recognition,” he told the conference, adding he would raise the issue the next time he met the US Securities and Exchange Commission chair.

Australia and the United States signed a cooperation agreement to mutually recognise each other’s laws for raising capital in 2008, but little has come from it.

Local media has speculated that Medcraft will be heading to Paris when he finishes up at ASIC in November, likely as a special adviser to the OECD secretary general.

The former investment banker lived in Paris for three years in the late 1980s when he worked for Societe Generale.